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The Indian Miracle Lives by Shashi Tharoor | Project Syndicate

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Shashi Tharoor
Shashi Tharoor, a member of India’s parliament, was Indian Minister of State for Foreign Affairs from 2009-2010, and served as United Nations Under-Secretary-General from 2001-2007. In addition to his expertise in Indian foreign policy and global affairs, he is an author of literary fiction, whose novels, including Riot, The Great Indian Novel, and Show Business, explore the intricacies of Indian society and the hidden underpinnings of its everyday life.

The Indian Miracle Lives
11 June 2012 NEW DELHI – To hear some people tell it, the bloom is off the Indian economic rose. Hailed until recently as the next big success story, the country has lately been assailed by bad news. Tales abound of investor flight (mainly owing to a retrospective tax law enacted this year to collect taxes from Indian companies’ foreign transactions); mounting inflation, as food and fuel prices rise; and political infighting, which has delayed a new policy to permit foreign direct investment in India’s retailtrade sector. Some have even declared that the “India story” is over. But today’s pessimism is as exaggerated as yesterday’s optimism was overblown. Even as the world has faced an unprecedented global economic crisis and recession, with most countries suffering negative growth rates in at least one quarter in the last four years, India remains the world’s second-fastestgrowing major economy, after China. Many reasons have been cited for this success. India’s banks and financial institutions were not tempted to buy mortgage-backed securities and engage in the fancy derivatives trading that ruined several Western financial institutions. And, though India’s merchandise exports registered declines of about 30%, services exports continued to do well. Moreover, remittances from overseas Indians remain robust, rising from $46.4 billion in 2008-2009 to $57.8 billion in 2010-2011, with the bulk coming from the blue-collar Indian expatriate community in the Gulf. Finally, the external sector accounts for only about 20% of India’s GDP. Most of the economy is a domestic affair: Indians producing goods and services for other Indians to consume in India. The Indian private sector is efficient and entrepreneurial, and is compensating for the state’s inadequacies. (An old joke suggests that the Indian economy grows at night, when the government is asleep.) India is good at channeling domestic savings into productive investments, which is why it has relied so much less on foreign direct investment, and is even exporting capital to OECD countries, where it is well able to control and manage assets in sophisticated financial markets. Indeed, India, home of Asia’s oldest stock market and a thriving democracy, has the basic systems that it needs to operate a twenty-first-century economy in an open and globalizing world.

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This offers hugely exciting opportunities to investors. with services up by 9% and accounting for 58% of India’s GDP growth – a stabilizing factor when a world in recession cannot afford to buy more manufactured goods.www. foreign investors will look anew at India. compared to under 40% in China.org/print/the‑indian‑miracle‑lives 2/2 .7/24/12 The Indian Miracle Lives by Shashi Tharoor | Project Syndicate There are other reasons for confidence that India will weather the storm. and India now has 943. 51.project-syndicate. versus 20% in China. most of it in the form of public-private partnerships. 100 million new phone connections were established last year.000 teachers appointed. at 32% of disposable income. two-thirds of them rural. Putting China aside. McKinsey & Company estimates that the Indian middle class will grow to 525 million by 2025. Bad loans account for only 2% of Indian banks’ credit portfolios. up from just 9% a decade ago. This article is available online at: http://www. China is thus far more vulnerable to external shocks. and 93% of Indians in towns and cities now have at least some access to electricity. These trends all augur well for India’s economic future. and only 25% from private consumption. from 65% in 2001.” Read more from our "Will India's Boom Go Bust?" Focal Point. 65% of China’s real GDP growth comes from exports. as the persistence of global recession drives down returns in the West. 8. And India’s workforce has been growing at nearly 2% annually in the last decade. India has the highest household savings rate in Asia. And they aren’t slowing: India is looking for $1 trillion in infrastructure development over the next five years. Some 20. But let no one doubt that we have achieved much.000 schools were opened and 680. households account for 65% of India’s national annual savings. In just the last two years.5 million telephone connections. The real picture of dogged progress is far removed from the perception of a government beset by inaction and policy paralysis. the country’s 247 million households. In fact. According to last year’s census.000 villages got power for the first time last year.project‑syndicate.org/commentary/the-indian-miracle-lives Copyright Project Syndicate . more than 50 million new bank accounts have been opened in the last three years. As a result. many are inclined to compare India unfavorably with China.project-syndicate. mainly in rural India). with 3.5 times the projected size of the US middle class. 1. As Prime Minister Manmohan Singh modestly put it: “I will be the first to say we need to do better.000 MW in additional power-generation capacity was added last year. An impressive 63% of Indians now have phones. while China’s grew at less than 1%. Still. by contrast. India’s economy grew by 6.org www. so a few macroeconomic numbers are worth considering. Half of India’s growth has come from private consumption. Nearly 60% of Indians have a bank account (indeed. including 40 million in rural areas. and less than 10% from external demand. Moreover. Not only does India have considerable resources of its own to put towards investment.5% in 2011-2012. reported a rise in the literacy rate to 74%.5 million new electricity connections in rural India.

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